YOUR COMPANY IS LOOKING FOR WORKING CAPITAL COST AND FACTORING SOLUTIONS!
INVOICE DISCOUNTING THAT FINALLY MAKES SENSE
You've arrived at the right address! Welcome to 7 Park Avenue Financial
Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs
EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Working Capital Cost? Most business owners understand that their largest working capital assets are accounts receivable, often follow by inventory. ( On occasion inventory might be larger - that is not the norm)
HOW DO YOU FINANCE YOUR LARGEST CURRENT ASSET?
If the largest working capital asset ( and the much-needed cash!) is tied up in accounts receivable then does it make sense for customers to utilize invoice factoring and invoice discounting, despite their concerns ( and perceptions ) around the cost of using this method of financing. A rough estimate of payment terms in business might be that probably 90% of the world's firms run on 30-day payment terms. Most business owners will quickly respond that while the world's terms are 30 days, most customers pay in 45-60 days, and, unfortunately, sometimes longer!
CONVERTING SALES INTO CASH
Business owners need and want to convert those receivables into cash. When business owners hold receivables for 60 days this becomes a more costly scenario than they think. This is one of our main points around customer's perception and lack of knowledge of the true cost of carrying receivables versus converting them into cash utilizing a factoring or receivable discounting facility. We will take a look a solid example of reality and perception of reality!
At 7 Park Avenue Financial we recommend Confidential Invoice Discounting as your best solution to financing receivables - this solution can also be combined into a non-bank business line of credit.
WHAT IS CONFIDENTIAL INVOICE DISCOUNTING?
Confidential a/r financing solutions allow your firm to fund your accounts receivable ' confidentially', no notice is given to your suppliers or customers regarding how you finance your business. Your firm bills and collects it's own a/r while achieving all the benefits of a traditional factoring solution - generating cash flow as you make sales for your goods or services.
INVOICE DISCOUNTING EXAMPLE
Let us say that a company has a 30-day payment term. Let us also assume that they generate a 20% overall return on equity on their business model. Finally, let's say that the customer pays in 44 days. ( Not the 30 they promised!)
$100 x 1.20 44/365 = 100$ x 1.02 = 102.22
Therefore the company can earn a 2.2 % return on the funds in those 44 days. ( Example courtesy of Standard & Poors )
REDUCING THE OPERATING CYCLE OF YOUR BUSINESS
If a company factors or discounts their receivables at the time those invoices are generated then they have the true ability to immediately reduce the overall period that it takes a dollar to flow through their company. The new working capital/cash can be used to expand operations, buy more inventory, etc. If a customer is charged a discount rate of 2% / month on the factoring any new financial statement will show that days sales outstanding have reduced significantly.
The most important point in our example is as follows: The longer a business owner waits to convert receivables the lower the overall return on equity is for the firm.
CHECK OUT THE DUPONT FORMULA
Business owners and financial managers are strongly urged to investigate a Wall Street term, or ratio, known as the DUPONT FORMULA. While the analysis of that formula is not the subject of our article the business owner will see that the formula is an incredibly great way to see how asset size and asset turnover impact RETURN ON EQUITY. We would quickly note that Return on Equity is one of the strongest measures Warren Buffett uses to measure financial success. The essence of the formula is simply that if a company can turn assets more efficiently then return on assets and equity increases.
CONCLUSION
In summary, we have shown that while customers many times focus only on the factoring rate or price, this type of analysis is very short-sighted, as the ability of a firm to utilize factoring or invoice discounting greatly enhances their overall asset turnover and return on equity. Factoring/Invoice Discounting reduces a company's collection period, allowing the company to finance growth.
Seek out and speak to a trusted , credible and experienced Canadian business financing advisor who can assist you with your business capital needs.
Click here for the business finance track record of 7 Park Avenue Financial
Stan Prokop
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